Guaranteeing financial continuity: maintaining a credit balance on the State’s single account every day.

The State’s single account is closely monitored The State’s cash holdings are centralised in a single account, called the “Treasury Account” that is used to record the balance of all of the transactions executed by the approximately 5,000 government accountants, who each manage one or more transaction accounts. At 31 December 2016, there were 6,533 transaction accounts.

In its capacity as the State’s banker, the Banque de France centralises these transactions in real time.

The transactions posted to the State’s account correspond to:

State budget transactions, such as revenue and expenditure,

Treasury correspondents’ transactions, meaning the transactions of entities that are required to deposit their funds in the Treasury Account,

AFT ensures that the State’s cash position is always adequate to settle the financial transactions posted to the Treasury Account under the most secure conditions. For this purpose, AFT monitors the execution of flows into and out of the Treasury Account with the Banque de France in real time. The average daily volume ofthese flows came to €17.8 billion in 2016.

Proactive cash management has been adapted to the environment of persistently low yields in the euro area AFT’s cash management relies on daily forecasts. These forecasts are used to assess the amounts needed to fund upcoming transactions to be posted to the Treasury Account.

AFT provides proactive management of the State’s cash resources to ensure sound stewardship of public monies. Temporary cash surpluses may be invested on the interbank market, if the return offered and the counterparty’s risk profile compare favourably to the terms offered by the Banque de France for holding the cash. These transactions take the form of deposits or repurchase agreements involving government securities. Given the current accommodative monetary policy stance, the abundance of cash on the European interbank market means that banks are less attracted to the loans offered by AFT. This environment had already affected AFT’s investment activity back in 2015, with average volume of €18.2 billion in some 3,500 annual transactions with counterparties.

The cash glut grew even larger throughout 2016. This meant that the benchmark rate for the interbank market in euros (Euro Overnight Index Average - EONIA) averaged -0.319% in 2016. This had an impact on AFT’s investment activity. The average amount invested stood at €13.4 billion in the first half of the year and at €7.1 billion in the second half. A total of 1,057 transactions were carried out during the year.

AFT adapted its strategy to the circumstances. Additional cash resources from issue premiums made it possible to reduce shortterm debt by €18.7 billion between the end of 2015 and the end of 2016. This reduced the State’s exposure to interest rate risk.

Treasury correspondents’ deposits provide a stable source of funding Entities that are required1 or authorised to deposit their cash holdings on the Treasury Account are called Treasury correspondents. The amounts deposited on 31 December 2016, excluding “Invest for the Future” accounts, stood at €102.3 billion. These funds are a cash resource for the Government.

Transactions made on Treasury correspondents’ accounts have a direct impact on the Treasury Account. AFT oversees the daily reporting of advance notifications of cash transactions from Treasury correspondents, which enables it to determine the settlement dates and amounts of transaction flows posted to the Treasury Account as accurately as possible. More specifically, local authorities and government-funded institutions are required to notify AFT of any financial transaction amounting to more than €1 million by 4pm on the previous day. In 2016, the percentages of large value transactions notified in advance stood at 98.2% for local authorities and government-funded institutions. These results are slightly better than the performance targets set out in the 2016 Budget Act.

The “super-validation” system was introduced in 2011. It enhances the security of the State’s cash management. The system allows the AFT to delay debits initiated by Treasury correspondents until the following day if the debits are more than €1 million and were not notified the previous day. AFT may authorise an immediate debit, despite the failure to comply with the notification rules, if the transaction does not entail any risk for the balance on the Treasury Account. The transaction is said to be “super-validated” in this case. In 2016, 228 transactions were “super-validated” which represents only a fraction of total flows and demonstrates the fact that government entities are highly disciplined.

1 Under the terms of the decree on government budget and accounting management of 7 November 2012, most public sector entities are required to deposit their funds with the Treasury. This requirement applies in particular to local authorities, government-funded institutions and hospitals. The Decree came into force on 30 June 2014.